Bruce Stuart: The financial transition for cloud

For a traditional reseller the key to the transition to a recurring revenue, cloud or SaaS focused business is more about cash flow and investment capability then it is about technology.  This will become extremely clear when you use LivePlan to model the financials 12, 24 and 36 months out.

Your corporate heritage, and what you are good at right now, not only impacts the feasible set of strategies that you are able to execute; it also determines how much you will have to invest to obtain or develop core capabilities that you will require but do not currently have.

For example, those resellers that already possess a marketing capability (about one company in four) need only to refocus their effort and change their communication strategy and tactics to focus on high volume/low cost per lead digital tools such as email marketing, webinars, search engine marketing and search engine optimization.  This is what it will take to deliver the volumes of high quality leads at the required cost to make your profit model work.  If you are a marketing “have not” and are part of the 60-70 per cent of partners and resellers that do not have a dedicated marketing resource, then your financial commitment to get in the recurring revenue/cloud/SaaS game will be higher in absolute terms.

If your corporate heritage supported the generation of sound sales people and compensation system flexibility, and your corporate technical heritage fostered a “whatever it takes to get the job done” culture, then your transition to the cloud or IaaS will be reasonably smooth. Your transition is going to take some more forceful guidance if your organization is “run” by the sales force, and the technical group does not get truly engaged in a client’s business problem unless they really like the problem. In this case the transition will not be impossible, but there may be some friction slowing your progress until you deal with the people or the systems or the strategies that are holding your transition back.  Either way the repurposing of your sales and technical people will have   financial impact on your transition plan.

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We will focus on the income statement, balance sheet, cash flow and business valuation impacts of making money in the recurring revenue environment and building business value in later instalments of this column.  Safe to say the key financial and business planning questions facing your organization at this point are how much will you need to invest to skill up to get in the desired business in the desired way, how long will it take for the investment made to payoff and what will be the projected return on the capital invested in the cloud or SaaS business that you plan to pursue.

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About Channelcorp

Margaret and Bruce Stuart founded Channelcorp in 1989.  The firm is a global leader in the assistance of reseller, distributor and vendor clients. Channelcorp specializes in the business model transformation that is required in the face of the structural changes to recurring revenue driven business models in the worldwide IT business (www.channelcorp.com/services.php).  Channelcorp publishes and sells four industry- leading books and 12 white papers (www.channelcorp.com/publications.php).  This independent firm has delivered consulting and executive education to vendor, reseller and distribution clients in more then 40 emerging, developing and mature markets around the world. (www.channelcorp.com/workshops.php).  More than 25,000 channel professionals from around the world subscribe to the newsletter Channelcorp intelligence (www.channelcorp.com/newsletter.php).